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The Dow: 2 Companies to Watch

By Alex Dumortier, CFA - Oct 10, 2012 at 10:32AM

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We're getting mixed signals from two bellwethers.

As of 10:25 a.m. EDT, the Dow Jones Industrial Average (^DJI 2.68%) is down 0.18%, and the S&P 500 (^GSPC 3.06%) is just 0.01% above breakeven. Dark macro clouds are looming as the International Monetary Fund prods the U.S. to address the fiscal cliff. The Fund now concedes that it may have previously underestimated the "fiscal multiplier" -- the negative impact on growth of a cutback in government spending.

Furthermore, earnings season got underway after yesterday's market close with Dow component Alcoa's (AA) third-quarter report, and it was hardly an auspicious sendoff. Although the aluminum producer beat expectations for the top and bottom lines, the business momentum looking forward is nosing down, as the company lowered its estimate for global aluminum demand growth this year. As of 10:30 a.m. EDT, the shares are down 2.85%.

The most significant earnings report today in terms of gauging the current health and direction of the U.S. economy is not that of a Dow component; it's Coscto's (COST 1.97%). Same-store sales in the U.S. increased 6% year on year, adjusted for gasoline price inflation. Perhaps the U.S. consumer is more vital than I think!

Costco management is holding a conference call that got underway at 10 a.m. EDT, and it will be interesting to get more color from them. In the meantime, investors are taking what they can get, sending the shares up 4%. If you're interested in this sector and your time horizon extends beyond the next quarter, you'll want to click here to receive our free report, "3 Companies Ready to Rule Retail."

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,500.68 (2.68%) $823.32
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,911.74 (3.06%) $116.01
Alcoa Inc. Stock Quote
Alcoa Inc.
AA
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$484.37 (1.97%) $9.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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